Over the coming months, I believe we could see an economic meltdown at least six times the size of the 2007 subprime mortgage meltdown…
The next financial collapse, already on our radar screen, will not come from hedge funds or home mortgages. It will come from junk bonds, especially energy-related and emerging-market corporate debt. The Financial Times recently estimated that the total amount of energy-related corporate debt issued from 2009-2014 for exploration and development is over $5 trillion. Meanwhile, the Bank for International Settlements recently estimated that the total amount of emerging-market dollar-denominated corporate debt is over $9 trillion.
Energy-sector debt has been called into question because of the collapse of oil prices. And emerging markets debt has been called into question because of a global growth slowdown, global deflation, and the strong dollar.
The result is a $14 trillion pile of corporate debt that cannot possibly be repaid or rolled over under current economic conditions. Not all of this debt will default, but a lot of it will. Most of the energy related debt was issued in theexpectation that oil would remain in the $80 to $130 dollar per barrel range.Most of the emerging markets debt was issued with the expectation that the dollar would remain at its weak 2011 levels. Instead oil is down, and the dollar is up, which capsizes these expectations. The moves have been swift and dramatic. Over the past six months, oil has crashed 52%, while the U.S. Dollar Index rose 15%. If default rates are only 10% — a conservative assumption — this corporate debt fiasco will be six times larger than the subprime losses in 2007.
My guess is multiple bubbles will start popping…we have another housing/subprime bubble that will be popped
There’s also the student loan bubble and even a subprime auto bubble among others…point being, is this is ALL the FED knows how to do…blow asset bubbles to stay afloat.
Also check out David Morgan talking about oil derivatives wrecking the economy with a 4-5 month lag time…
Dec. 31 (Bloomberg) — James Rickards, chief global strategist at West Shore Funds, explains why commodities are crashing. He speaks with Bloomberg’s Pimm Fox and Scarlet Fu on “Street Smart.” (Source: Bloomberg)
Currency Wars: Jim Rickards on Financial Warfare
No More Lies